***************************************************

Following is the transcript of the opening address by the Chief Executive, Mr Tung Chee Hwa, at the SeaTrade Hong Kong Conference at Hong Kong Convention and Exhibition Centre today (Monday):

Themis, friends, ladies and gentlemen,

I am delighted to be standing before you amongst many good friends, many familiar faces. As you know, you all know, I am no longer involved in shipping but I do miss shipping very much and it's really so nice to see all my shipping friends gathered here from Hong Kong and around the world.

Shipping is really a tough business and Themis was saying to me as he was welcoming me that "It must have been a very tough time for you, how do you cope with it?" and I said, "You know, Themis, if you have weathered storm in shipping, you can do anything else."

In 1997, September, I visited Singapore where the Prime Minister is a very old friend of mine; his name is Mr Goh Chok Tong. Before he became a politician, he was the Chief Executive of Neptune Orient Lines which is of course the shipping company in Singapore. In the 70's, the two of us became very good friends. We were making joint ventures together, and so on and so forth. We became good friends and I followed his political career with a great deal of interest.

When I saw him again in 1997 in my official capacity as the Chief Executive of Hong Kong, we exchanged notes about our experiences and I told him that he was really smart because in the early 70's, he knew shipping was going to be difficult - he got out of shipping and got into politics - and I said if I knew then shipping was going to be so difficult, I should have got into politics long time ago.

But I can assure you being the Chief Executive is equally a very challenging task, especially what we had to manage over the last two-and-a-half years. All of you are in business and you all know to manage a status quo is a relatively easy task but to manage changes, it brings out the best out of people. We had two major changes we had to manage - one is as a result of fundamental change in that Hong Kong moved forward on July 1, 1997 to become a part of China under "One Country, Two Systems", and the other is the turmoil which hit us sideways, the Asian financial turmoil, both of which were enormous changes that we had to manage.

In so far as the resumption of sovereignty by China over Hong Kong under "One Country, Two Systems" is concerned, this concept is untried anywhere. The important thing was for us to manage this change, to make sure that the "One Country, Two Systems" is truly, truly implemented here in Hong Kong, to turn a concept into reality. It is really a tough challenge but I am happy to say in the two-and-a-half years since the return, for those of you who live here, I am sure you would agree with me that "One Country, Two Systems" is being implemented here, solid foundation is being laid. Under the "two systems", our way of life has not changed. The freedom we have always enjoyed, we continue to enjoy. We have a separate judiciary. We have a separate currency managed by Hong Kong Monetary Authority, and we are moving ahead really in a very resolute, determined way to make "One Country, Two Systems" a reality.

Those people who were sceptical would say: How did it happen? Why did it happen? Well, I have always made the point - the success of "One Country, Two Systems" is in the fundamental national interest of China as a whole. Secondly, "One Country, Two Systems" is a concept but actually it is enshrined in a piece of document which is called the Basic Law. I am saying all these things because I know there are visitors from overseas. For those who are here, local businessmen, please bear with me. But there is a piece of document which is called the Basic Law which was passed by the National People's Congress in April 1990 to become the law of the country. That piece of document enshrines "One Country, Two Systems", institutionalises "One Country, Two Systems", and today everything we do we rely on this Basic Law as we move forward.

Of course we in Hong Kong work very hard too to ensure that "One Country, Two Systems" is implemented successfully and for those of you who are here for a few days I hope you go out and see and talk to as many friends as you have to see how well we are working and how proud we are. The fact is that how well it's working can be seen from the number of people who are returning to Hong Kong. Those who have emigrated overseas are now coming back to Hong Kong. In 1998, one of those very difficult years financially, Hong Kong people bought close to 60,000 apartment units, spending over 110 billion Hong Kong dollars, as their new homes. All of this is a record for Hong Kong. So people are not just voting with the act by coming back but they are also voting with the wallet emphasising their confidence in the success of "One Country, Two Systems".

There are those who question from time to time the rule of law, how strong it is. I can tell you the rule of law is very strong here. We are very proud of our track record. For those of you who are involved in commerce you will understand that the rule of law is just as important. Recently we entered into agreement with Disney World and it is one of those really sophisticated savvy companies in the world. We hope we will never get into dispute with Disney World but the agreement is governed by the laws of Hong Kong. It goes for years and years beyond 1999. So even a company like Disney World is very relaxed about the Hong Kong law governing agreements. The reason why is that they have confidence in the rule of law of Hong Kong.

So much for "One Country, Two Systems", how we were able to assure the full implementation. Let me talk a bit about the financial turmoil of Asia.

It began on July 2, very inconspicuously in Thailand, while we were still celebrating. Of course before long it became a full-blown financial crisis and I remember on October 24, 1997 when I was visiting London, the overnight interest rate in Hong Kong got to 300 per cent. It's been a very difficult period for us. Our economy contracted for five successive quarters by about five per cent. Unemployment shot up from two and a quarter per cent to six and a quarter per cent. Property prices fell by about over 50 per cent.

It was a very difficult time for us but as a government we responded quietly but effectively by taking many, many measures, short-term measures, including cutting taxes, freezing Government charges, freezing of rates. We went on a tremendously ambitious capital expenditure programme of building roads and railways and schools and so on and so forth. The whole purpose of this is to put money into the hands of our citizens on the one hand and, at the same time, when we build roads or railways or schools, we're really building for our future.

We deliberately but uncharacteristically went for budget deficit which is not the way we do things. We went for budget deficits with a view really to help stimulate the economy. At the same time, obviously, as a small economy we rely a great deal on what's happening all around us: what will happen to the United States, Europe, and also Japan. I'm glad to say that after really some very difficult time, our economy bottomed out in the second quarter of 1999 and in the third quarter we have seen a positive growth of four-and-a-half per cent. I believe we are now moving out of the bottom, we're moving up now.

But throughout this period of time as a Government we never lost sight of what we are going to be in the longer term. It's no good just tackling short-term problems. It is our responsibility to do that, but we need to look at the long-term: where Hong Kong is going to be 10 years from now or 20 years from now, and we've got to be ready for it. Our assessment was this: we are facing many, many new challenges ahead of us.

One of them is an increasing globalisation of the economy, the effect of information technology on that economy, and on Hong Kong itself. Indeed, these are changes which we cannot underestimate especially as our economy is so open.

The other is to recognise that some of our prosperity was because we were ahead of many major cities in China in many different ways and that that gap is rapidly narrowing, whether it's in areas of infrastructure, areas of human resource provision, in areas of international relationship, and that if we do not maintain the gap we will have really some difficult times as we move forward.

Thirdly, to also recognise that China is really moving forward. It's now the seventh largest economy in the world and the World Bank says by the year 2020 China will become one of the largest economies in the world, maybe the third largest.

How do we as Hong Kong participate in that economy more fully so that the country as a whole can benefit, but also Hong Kong can benefit?

Faced with all these changes we set out our vision of the future and our vision is really to make Hong Kong one of the most important cities - one of the most important cities in China - but also the most international and cosmopolitan city of Asia, like what New York is for North and South America and like what London is for Europe. This is what Hong Kong should be for Asia, and that is where we are going as we approach the 21st century.

We asked ourselves, what do we need to do? How do we get there? We already have a first world economy with a GDP per capita of 25,000 dollars, first class infrastructure: roads, railway, port facilities, airport, telecommunications; very efficient small government - and there are a lot of criticisms aimed at the Government but I tell you it is a very efficient and good Government. The rule of law is equal to none in Asia and we are moving forward very proudly on all these fronts.

But how do we attain our objective? We recognise clearly there are areas we need to improve. One of the areas is education. How do we as a community meet the challenge of a knowledge-based economy of the future? Our education system needs to be beefed up to meet that challenge. The other is in the area of quality of life for the people who live in Hong Kong. If we cannot retain all the best brains we train, if we cannot attract all the best people to come to Hong Kong because the quality of life is not good enough, then we will have failed very miserably.

In my Policy Address in October I talked about the importance of these two areas and mapped out the strategy as to how we need to move forward as we approach the 21st century. All I can tell you is that as a government we are very determined to move forward on these fronts and I'm pleased that we have very broad support among the community as a whole.

So, ladies and gentlemen, so much for propaganda about Hong Kong. But for those who are visiting Hong Kong recently, I hope you will take back a memory of a Hong Kong who is determined, who is vigorous, who is optimistic about our future, about the role we are going to play in Asia in the development of our own country, and I tell you we are really confident as we move forward.

But I'm here really not to talk about Hong Kong. I'm here supposedly to be talking about shipping and it's a subject I want to assure you I have not forgotten. I still have time to read every day some of the financial newspapers - Financial Times, Wall Street Journal - and from time to time I latch on to all these reporting about shipping. From time to time I also read journals on shipping just because I'm very interested in following what's happening around the world. I share with all of you ship owners the agony when the markets are down and then when the markets are up - and it's not very often they are - then I feel very happy for you people.

I want to talk a little bit about shipping in Asia. Fifty per cent of the tonnage around the world is owned by Asian ship owners - 50 per cent. Seventy per cent of the world ship building every year is produced by Asian ship builders. Asia, by and large, is resource hungry. Importation of oil, iron ore, grain, coal, make Asia's need for shipping a very huge one. As the world developed in the 60's, Asia became the manufacturing centre of light industrial goods - now to even more sophisticated goods such as personal computers and so on - Asia became the centre. So actually 70 to 80 per cent of all container shipping is engaged in trade to and from Asia.

So ladies and gentlemen, shipping has a very special position in Asia as a whole. We must constantly remind ourselves that if I were in shipping, I would want to stay close to my customers and where else in the world is the best place to do this? You can do it in Tokyo, Hong Kong, Beijing, Singapore, all over the place. But I would suggest Hong Kong in the middle of Asia, four hours flying distance from all these places, is really one of the best locations for shipping to be able to stay close to the customers, to know what is happening in the market place.

A special word about the Chinese economy. It's been growing very rapidly as you know. Today steel production in China of over 100 million tonnes a year is already the largest in the world. China has become a net importer of oil, therefore there is a need for more ships. Of course, in the case of steel production they need ships for the transportation of iron ore. Forty per cent of all the container trade to and from Asia originates from the Mainland of China. So you can see the role of Mainland China, as China moves forward in its economic reform and progress, how important China is to the shipping world. Again I'd like to ask you: where else but Hong Kong for you to and for international shipping companies to engage in business for shipping with or on the mainland of China?

There are people who ask me, "C H, what would happen if China successfully joins WTO?" It's not really an "if" now, it's a question of when, and hopefully some time in the first half of next year this will become a reality. Would Hong Kong's position be affected? How would WTO affect shipping?" Well, the truth is that there is a Goldman Sachs report which talks about trade to and from China will be doubled in the next six years because of accession to WTO. It will be doubled. It's already a very large force in the maritime world and if you can imagine the shipping requirement could also be doubled because of the trading requirement. It's a huge need.

The other is of course the same report, perhaps a bit optimistically, predicted that foreign direct investment will go from 45 billion dollars a year to close to a 100 billion dollars a year. Now, that 45 billion dollars a year makes China already the second largest recipient of foreign direct investment in the world, year after year since the mid-90's. To go up to a 100 billion dollars a year maybe is a bit optimistic but I'm quite sure there will be a lot of foreign direct investment, a lot more foreign direct investment into China. Again, I think Hong Kong has a very unique role to play as a financial centre in Asia. That is not to mention the need for legal services, accounting services, and all the other professional services as China opens up.

So I see all the pluses of China's entry into WTO, not only for China as a country, not only for the United States, not only for the world, but particularly for us here in Hong Kong. So as the new millennium approaches, we are poised now to move ahead in Hong Kong as a very important - even more important - maritime centre.

Actually, Hong Kong as a maritime centre has a very unique position, perhaps not spoken of often enough. Hong Kong ship owners own or control or manage 58 million tonnes of ships. A thousand companies are involved in shipping related activities. It's a very huge fleet. These thousand companies of course are involved in ship owning, in management of ships, in finance, in brokerage, in insurance broking, in arbitration - a whole range of service activities. Of course, as a port Hong Kong's container throughput at, I think, somewhere around 13 million TEUs a year is one of the largest in the world today.

So Hong Kong does have a very unique position as a ship owning centre, as a maritime centre, both in terms of the port operation, but also in terms of ship owning and management. We have a very active Port and Maritime Board which advises the Government as to how we should move forward, and thanks to their advice recently we have cut the registration fee for Hong Kong registered ships by 50 per cent. There are now close to 10 million deadweight tonnes of ships registered under Hong Kong registry. And the fact that we are a financial centre readily provides available financing for ship owning and management operations also helps. There are more P and I clubs in Hong Kong than anywhere else except for London. They are here, represented here, servicing the Asian ship owners. There is now development of an Asian hull market which has now just started.

So in Hong Kong, we have already begun, but we are determined to make Hong Kong the premier maritime centre of Asia and indeed around the world. We think we have a unique opportunity to achieve this as part of our broader objective. All I can tell you is that all my life I have reminded myself, when you want to do something be close to your customers, know what they want. Asia is so important to shipping, so there is no better place than Hong Kong. So I hope I leave you with this note: come to see us in Hong Kong and work with us in Hong Kong.

Thank you very much.

End/Monday, December 6, 1999

NNNN